Get to the bottom of shady loans

The Financial Services Agency on Sept. 27 ordered Mizuho Bank to stop lending money to “anti-social forces” and ordered it to submit a business improvement plan by Oct. 28 after it was found that the bank has processed up to ¥200 million worth of transactions for yakuza groups through some 230 dubious transactions, mostly in the form of car loans.

The bank’s response has been extremely unsatisfactory and unworthy of the nation’s third largest bank. This demonstrates poor corporate governance. The bank must make strenuous efforts to rectify the situation so that it can get back people’s trust.

A normal response to this kind of development would involve management holding a news conference immediately to explain what happened, what kinds of mistakes the company made and what measures it will take to prevent such mistakes. But the Mizuho Bank management remained silent for a week.

Not until Oct. 4 did the bank hold a news conference to disclose that two vice presidents and two managing directors had become aware of the dubious transactions done through Orient Corp., a credit company in the Mizuho group, in and after December 2010. But none took proper actions after learning of the loans.

Although the bank had denied that a report on the transactions reached presidents of the bank, it backpedaled four days later on Oct. 8 when Mizuho Bank President Yasuhiro Sato held a news conference — the first by the bank’s top executive since the scandal broke — at which he admitted that in meetings in and after July 2011, he received reports on the transactions in question and that, in July 2010, Mr. Satoru Nishibori, president of the bank at the time, had given instructions on an appropriate way to deal with the matter. Mr. Nishibori also received a report on the illicit transactions in February 2011, and Mr. Takashi Tsukamoto, Mr. Sato’s predecessor, received a similar report in July 2011.

Although Mr. Sato first received the report on the loans in July 2011, he said he only became aware of the problematic nature of the loans in March of this year when he heard an explanation of the FSA’s investigation. This explanation is not convincing. It shows that he did not see a need for the bank to sever relations with underworld groups — which would also explain why he did not take action before the FSA issued the order Sept. 27.

As the FSA pointed out the problem to Mizuho Bank toward the end of 2012, a bigger question is why the bank failed to take any appropriate actions during this period. Mizuho executives should realize that the scandal has damaged the reputation of Japan’s financial industry abroad as well.

A third-party committee should carry out a thorough investigation of the bank’s suspect loans. At the very least it should find out what actions the compliance section took and what kinds of instructions the loan section issued to Orient Corp., which directly extended loans to yakuza groups.